BAA Ltd v Competition Commission

LORD JUSTICE MUMMERY: I will ask Lord Justice Sullivan to give the first judgment.

LORD JUSTICE SULLIVAN: This is an appeal from the judgment dated 1 February 2012 of the Competition Appeal Tribunal ("the Tribunal") dismissing BAA's application under section 179 of the Enterprise Act 2002 ("the Act") for review of the Competition Commission's ("the Commission") decision, dated 19 July 2011 ("the 2011 report") requiring BAA to divest itself of Stansted airport. The background to the 2011 report is set out in detail in the Tribunal's judgment [2012] CAT 3. In summary, the commission published a report on 19 March 2009 ("the 2009 report") in which it found inter alia that BAA's common ownership of Gatwick, Heathrow and Stansted created an adverse effect on competition ("AEC"). In order to remedy that AEC, BAA was required to sell Gatwick and Stansted. It was also required to sell one of its two Scottish airports. BAA started to sell Gatwick, but the sale of Stansted was put on hold because BAA challenged the 2009 report in statutory judicial review proceedings before the Tribunal on two grounds: (i) bias, and (ii) failure to take account of material considerations when assessing the proportionality of the requirement to sell three airports ("the divestiture remedy"). The Tribunal allowed the application on the first ground, bias, but dismissed it on the second. On appeal to the Court of Appeal, this court allowed the Commission's appeal against the Tribunal's decision on the first ground on 13 October 2010, see [2010] EWCA Civ 1097. There was no cross-appeal by BAA against the Tribunal's rejection of its second ground of challenge. Although it had been concluded that the 2009 report was a lawful report, time had elapsed since the publication of the 2009 report, as a result of the appeal process, so the Commission consulted on the question whether there had been any material change of circumstances ("MCC") which would justify a departure from the remedies it had decided upon in the 2009 report. BAA was, of course, one of the consultees. After a first round of consultation, the Commission published a provisional report. After a second round of consultation on the contents of the provisional report, the 2011 report was published by the Commission. By that time, Gatwick had been sold; the 2011 report confirmed that BAA should sell Stansted, and one of its Scottish airports. There is no challenge to the latter requirement before the Tribunal; BAA's challenge to the Commission's 2011 report was confined to the requirement to sell Stansted.

Before the Tribunal, BAA challenged the lawfulness of the 2011 report on four grounds. The Tribunal rejected all four grounds. In this court, there are two grounds of appeal against the Tribunal's decision. Before considering those grounds, it is helpful to outline the structure of the Tribunal's lengthy decision, which runs to 92 paragraphs. Having set out the background to the challenge to the 2011 report in an introduction to the judgment, the Tribunal set out the legal framework in paragraphs 16 to 21 of its judgment. It then summarised the relevant findings in both the 2009 and the 2011 reports in paragraphs 22 to 42 and 43 to 59 respectively.

Against that legal and factual background, the Tribunal analysed and rejected the four grounds on which BAA challenged the lawfulness of the 2011 report. Before this court, there is no challenge to the Tribunal's statement of the applicable legal principles. For present purposes, two of those principles are relevant. First, it was common ground that the divestiture remedy had to satisfy the principles of proportionality. The agreed formulation of the proportionality test for this purpose was as follows:

Secondly, the Tribunal said that when giving reasons for its decision, the Commission was required to do so in accordance with the familiar standards that were set out by Lord Brown in South Buckinghamshire District Council v Porter (No 2) [2004] UKHL 33. Having set out the relevant passage from Lord Brown's speech, the Tribunal said this in paragraph 20 of its judgment:

Subject to the matters raised in BAA's two grounds of appeal, see below, there is no criticism of the Tribunal's account of the factual background to the section 179 challenge, or of its summary of the relevant parts of the 2009 and 2011 reports. I turn to the two grounds of appeal. In its first ground of appeal, BAA contends that the Tribunal erred in rejecting ground 4 of its challenge before the Tribunal. The grounds of appeal to this court are somewhat discursive. The two grounds are explained in no less than 44 paragraphs. Paragraph 9 of the grounds summarises BAA's position in this way:

In its second ground of appeal, BAA contends that in paragraph 61 of its judgment the Tribunal misconstrued the 2009 report. It is convenient to consider this ground before examining ground 1. In paragraph 60 of its judgment, the Tribunal referred to the submissions of Mr Green QC, who appeared on behalf of BAA before both the Tribunal and this court, that circumstances had changed so much by the time of the 2011 report that the AEC identified in the 2009 report had ceased to exist in any significant way, so that the divestiture requirement was no longer a proportionate remedy. The Tribunal's response to this submission, in paragraph 61 of its judgment, was as follows:

"We reject Mr Green's submission. It ignored the implications of the CC's unchallenged findings in the 2009 report that in the London area there had been 'an almost complete absence of competition and almost total market failure' ... with 'plentiful evidence of monopolistic behaviour' on the part of BAA. It failed to give proper weight to the robust findings of the Commission in the 2009 report and carried into the 2011 report regarding the strong substitutability of Heathrow and Stansted (when looking at the scope for bilateral competition between them) and the strong substitutability of Heathrow, Gatwick and Stansted (when looking at the scope for development of a trilateral competitive dynamic between them all). It also failed to take into account the CC's assessment in the 2009 report and the 2011 report, in large part flowing from these findings, that substantial constrained capacity benefits could be expected to arise specifically from the divestment by BAA of Stansted (in addition to Gatwick)."

BAA's second ground of appeal alleges that in concluding that the 2009 report had found that there was "... strong substitutability of Heathrow and Stansted (when looking at the scope for bilateral competition between them) and ... strong substitutability of Heathrow, Gatwick and Stansted (when looking at the scope for development of a trilateral competitive dynamic between them all) ..." the Tribunal misconstrued the 2009 report and this was an error of law. An analogy was drawn with the court's approach to the construction of policy documents. In First Secretary of State v Sainsbury's Supermarkets Limited [2005] EWCA Civ 520, Sedley LJ, giving the judgment of the court, said in paragraph 16 that:

In my judgment, the analogy with the court's approach to the interpretation of a policy statement is not appropriate. Of course, the 2009 report means what it says, but what it says about substitutability is contained principally, but by no means exclusively, in section 3 of the report in 168 paragraphs (paragraphs 3.1 to 3.168) which run to 43 pages of closely typed text. The Tribunal's overall conclusions on this issue in paragraph 3.168 were as follows:

The proper approach to such reasoning in the report is to be found in the South Buckinghamshire case (see above). The 2009 report must be read as a whole and in a common sense way. If that is done, it is immediately apparent that there is an air of unreality in BAA's submission that the Commission did not conclude that there was "strong substitutability". If the Commission had not been satisfied that there was, at the very least, a significant degree of substitutability, it would have made no sense for it to have required BAA to divest itself of Stansted. The Tribunal should be very slow to conclude that the proper interpretation of a report is one which would lead to the conclusion that the Commission had arrived at a perverse result, where the remedy would be inconsistent with the interpretation placed upon the Commission's earlier conclusions.

Paragraph 61 of the Tribunal's judgment very briefly summarises in part of a single sentence the conclusions reached by the Commission in a lengthy section of the 2009 report. As such, it is a perfectly adequate summary of the Commission's conclusions as to substitutability. When the point was put to Mr Green during the course of his oral submissions, he accepted that in its 2009 report, the Commission had concluded that there was indeed strong substitutability. However, he then submitted that this conclusion in the 2009 report had been based on the premise that capacity constraint would be reduced by the provision of additional runway capacity, and the Tribunal had failed to appreciate that the position had changed in this respect by the time of the 2011 report.

In my judgment, there is no force in that submission. I have referred to the fact that there is no criticism of the manner in which the Tribunal summarised the contents of the 2009 and 2011 reports, save in the limited respect alleged in ground 2. The Tribunal was well aware of the MCC found by the Commission. In paragraph 58 of its judgment, the Tribunal set out the Commission's summary (in appendix A to the 2011 report) of the likely areas of benefit:

The short answer to ground 2 is that the Tribunal in paragraph 61 of its judgment did not misconstrue what the Commission had said about substitutability in section 3 of the 2009 report.

I turn to ground 1. In his oral submissions, Mr Green described this ground as the "time cost" point. For my part, I confess that despite Mr Green's helpful submissions I found it difficult to pin down precisely what this "time cost" point really was. The Tribunal summarised its understanding of the point in paragraph 71 of the judgment:

The Tribunal thought that this was a new point which had not been raised by BAA in the consultations leading up to the 2009 and 2011 reports, and it said in paragraph 75:

If that was a correct conclusion, it is a complete answer to this ground of appeal.

Mr Green submitted, however, that the "time cost" point was not a new point. In his submissions in reply, he confirmed that BAA was not contending that the fact that any sale would be a sale under compulsion would result in a loss "per se". The fact that the sale would be a sale under compulsion would lead to a loss "only if it was coupled to a short timetable for divestiture". He submitted that the point was a "timetable point", which BAA had raised both in its challenge to the 2009 report and in its representations in the consultation on the 2011 report.

The difficulty with that submission is that if this was not a new point, and it is simply a timetable point which was raised by BAA in its representations to the Commission in 2009 and 2011, then the Tribunal considered the timetable issue in its 2009 judgment, [2009] CAT 35. In paragraph 206 of that judgment, the Tribunal described the issue as follows:

Having set out the parties' submissions on this issue, the Tribunal said in paragraph 249:

In the succeeding paragraphs of its judgment, the Tribunal answered "Yes" to that question. In paragraph 259 it concluded:

BAA did not challenge that conclusion by way of cross-appeal to the Court of Appeal. Mr Green submitted that BAA were not in a position to do so, because this was a finding of fact by the Tribunal. But it seems to me that if the "time cost" point is a good one, namely that even if the timescale for the required sale of Stansted is calibrated so as to afford BAA an appropriate opportunity to obtain a fair market value for its asset, that is not good enough, and an additional period of time must be allowed in order for the divestment remedy to be proportionate, then it was a good point in 2009, and if BAA wished to contend that this was a legal flaw in the 2009 report, it should have cross-appealed against the Tribunal's conclusion in paragraph 259 of its 2009 judgment.

The challenge in these proceedings is of course to the 2011 judgment of the Tribunal. In paragraph 33 of its skeleton argument, BAA explained why it did not submit evidence "relating to the quantum of the loss attributable to the fact of a forced sale" to the Commission:

Thus on its own case, BAA knew that the Commission's view (which the Tribunal had accepted in 2009) was that provided the timescale for sale was accurately calibrated so as to enable the market value of the asset to be obtained, there was no further loss to be put in the balance in the proportionality exercise. If BAA disagreed with that position, it should have said so in terms and supported its representations to the Commission with evidence in its responses to the two rounds of consultation leading up to the 2011 report. Based upon an exchange of letters between BAA's solicitors, Herbert Smith, and the Treasury Solicitor acting on behalf of the Commission, Mr Green submitted that there had been a change of position by the Commission and that this somehow explained BAA's failure to adduce evidence about this topic. In a letter dated 15 November 2011, Herbert Smith referred to BAA's defence and said:

The Treasury Solicitor's reply on the following day said in part:

I confess that I do not understand the "change of position" allegation. Far from being a change of position, it seems to me that the Treasury Solicitor's answer is simply a repetition of the point that had been made by the Commission and endorsed by the Tribunal in 2009, namely that if the Commission accurately calibrated the timing of a sale, "there would be no loss to put in the weighing scales". There is simply no point in seeking to assess, whether quantitatively or qualitatively, a non-existent loss. The suggestion that BAA was somehow under the mistaken impression that a qualitative analysis of its loss had been undertaken by the Commission, which was neither referred to in the 2009 report nor disclosed by the Commission at any stage in the 2009 proceedings, and that this undisclosed qualitative analysis was the "calibration" to which the Tribunal was referring in paragraph 259 of its judgment, is not credible. In 2009 BAA was challenging the lawfulness of the 2009 report. The Tribunal concluded that on a fair reading of the report the Commission had weighed the factors that were relevant to the issue of proportionality. The Tribunal further concluded that since the Commission's aim, in calibrating the timescale for a sale, was to eliminate so far as possible the risk of depleted proceeds, there would be no need for a quantitative or qualitative estimate of the loss which BAA might have suffered if the Commission's objective had been different.

In a nutshell, therefore, either the "time cost" point is a new point, in which case it was too late to raise it before the Tribunal in 2011, or it is a repetition of the timescale point which had been raised in 2009 by BAA and rejected by the Tribunal. Of course it is true that the proportionality of the timescale had to be reconsidered in 2011 in the light of the MCC since 2009, but that was precisely what the Commission did in very considerable detail in paragraphs 311 to 339 of the 2011 report. That reasoning is not challenged in these proceedings. In reality, whether the "time cost" point is a new point or a variant of the old "timescale" point is of no practical consequence, because the fact remains that BAA, by its own admission, did not submit evidence relating to the quantum of the loss attributable to the fact of a forced sale in its representations to the Commission in 2011. It did submit evidence in support of its contention that the timescale for a sale should be longer than the Commission had directed in 2009, but the Commission considered that evidence and rejected it.

In the absence of any evidence from BAA seeking to quantify the loss attributable to the "time cost" point, it is impossible to see how it could have been a significant factor in any proportionality balancing exercise. New or old, the point fails for want of evidence. There is no challenge to the Tribunal's refusal to permit BAA to adduce new expert evidence on the point. I would add, though it is really of no consequence, that the need to adduce new evidence suggests, to me at least, that in truth the point was a new point.

The Tribunal concluded that there was a further reason that the point now called the "time cost" point should be rejected. In paragraph 76 of its judgment, the Tribunal said:

I respectfully endorse the Tribunal's reasoning in that paragraph of its judgment. BAA's contention that the Tribunal erred in its approach to the assessment of proportionality ignores the fact that proportionality is not to be assessed in a vacuum. Whether a remedy under section 138 of the Act is proportionate must be considered in the context of the statutory scheme as a whole. In accordance with the statutory scheme in the Act, it has been decided that there is an AEC, that action should be taken to remedy it, and that the only effective remedy is a requirement that BAA sells Stansted. That requirement is in the public interest. It is inherent in such a statutory scheme that in order to secure the public interest, BAA will lose its freedom of choice as to whether and when to sell its asset. In that context, providing the timing of the compulsory sale is "calibrated", so as to ensure that BAA does have a proper opportunity to market its property and obtain a fair market price, the remedy will be proportionate. BAA's submission boils down to the proposition that in addition to the period which will give it a proper opportunity to obtain the market value for its asset, it would be disproportionate not to give it a further period referred to by Mr Green during the course of his submissions as "market value plus", in which to market its asset. It is then submitted that the cost to BAA of the loss of this extended period ("the time cost") should be factored into the proportionality balance. But the underlying premise that BAA should be given an extended "market value plus" period in which to market its asset is simply a thinly disguised way of asserting that BAA should not be compelled to sell its asset at a time that is not of its own choosing. But that is precisely what is required in the public interest by this statutory scheme. In obtaining the market value for its property, BAA will be in the same position as the owner of any commercial premises whose property is compulsorily acquired in the public interest under a compulsory purchase order, for example for the construction of a new airport. In neither case, compulsory acquisition or compulsory sale at market value, can it be said that the measure which is required to be taken in the public interest is disproportionate.

For these reasons, I for my part would dismiss this appeal.

LORD JUSTICE RIMER: I agree.

LORD JUSTICE MUMMERY: I also agree.